Chancellor George Osborne has batted off calls to cool the housing market, but says the Bank of England can act if needed

Critics of Mr Osborne's flagship Help to Buy property support scheme have been calling for it to be reined in, but he indicated that he would not change its course.

However, Mr Osborne told BBC Radio 4’s Today programme that Bank of England ‘should not hesitate’ to use its powers to tackle any house price bubble.

Soaring: House price inflation has hit double-digits, according to Nationwide's report

The rapid acceleration in house price inflation has seen renewed pressure for action to thwart any new potential bubble, with calls ranging from suggestions interest rates should rise sooner than planned to demands to limit mortgage loan-to-value levels.

Official figures from the ONS show house prices up 9.1 per cen.t annually, while Nationwide puts the rise at 10.9 per cent and Halifax has reported a 8.5 per cent rise.

Leading international economic think-tank the OECD said the Bank should move to ease risks of an overheating property market this week.

Three former chancellors, Lord Lawson, Lord Lamont and Alistair Darling have also raised concerns over the Government's Help to Buy mortgage guarantee scheme, which provides support for home purchases of up to £600,000.

Mr Osborne told the Today programme: ‘Housing has always been a real challenge for Britain and a problem in the British economy because the supply of housing has not matched the demand for housing.

‘Now, the answer to that is to increase
the number we build to make sure that families can afford to get on the
housing ladder but I have also given the Bank of England tools to
intervene in the housing market to ensure economic stability.

‘They should not hesitate to use the tools that I have given them if they think it will help with economic stability.

'That's for them to make the judgment but let's not repeat the mistakes of the past, let's make sure we have learnt those lessons.’

While Mr Osborne and the property industry have been keen to point the finger at a lack of homes being built, house price inflation is largely being driven by cheap credit, in the form of near record-low mortgage rates, a resurgence in small deposit mortgage lending and the unprecedented support for the market being dished out through Help to Buy.

The amount of homes that would need to be built and time it would take to do so makes it highly unlikely that more supply can cure the problem of property prices being driven up from a point where they are already expensive on most traditional measures using either wages or rent.

Help to build: George Osborne claims that Britain's house price problem is being caused by not enough homes being built.

Help to Buy comes in two parts and it is the second part that is most controversial.

The first offers a five-year interest-free loan of up to 20 per cent of a property's value to those buying new-build homes worth up to £600,000, if they put down a five per cent deposit.

The second offers lenders extra protection to encourage them to deliver small deposit mortgages.

If a homeowner puts down a 5 per cent deposit, the bank or building society can pay a small fee and gets protection against any loss on the next 15 per cent of the home's value.

This means it will not lose any money on the first 20 per cent of the home's value if the borrower defaults.

With political pressure to increase housebuilding, it is possible that the first part of Help to Buy may remain untouched but the second part could be reined in.

Suggestions include lowering the maximum mortgage size that can qualify from the current £600,000 limit, or potentially decreasing the amount of a home's value protected from 15 per cent to 10 per cent of even 5 per cent.

The property market mini-boom has also been driven by record low mortgage rates, which have been backed by Bank of England support through Funding for Lending.

This allowed banks to borrow money at a rate as low as 0.75 per cent to pass on to borrowers, although the Bank of England acted to turn off the taps at the start of this year - with lenders no longer able to access new money by increasing mortgage lending.

Figures from Halifax this week recorded house price inflation at 8.5 per cent annually but echoed some recent mortgage reports that indicate the property market may already be slowing slightly.

Halifax has now reported two monthly price falls in a row, while surveys report mortgage approvals slipping slightly as new tougher lending criteria is imposed through banks and building societies, via the Mortgage Market Review implementation.

Asked if he would intervene in the property market, George Osborne said: ‘Mark Carney (Bank of England governor) and the financial policy committee are very qualified people to make this judgment and my job as the Chancellor, the job of Parliament, is to give the Bank of England the tools to do the job. Let them make the assessment.’